California needs answers after overpaying for flood insurance

The release of water from Lake Oroville in February flooded the historic Marysville Cemetery.

The release of water from Lake Oroville in February flooded the...

California is paying too much for flood insurance. It’s paying so much more than it should, experts contend, that it might be more cost-effective for the state to bow out of the national flood insurance program and set up its own system.

The numbers, which were collected by Nicholas Pinter at the UC Davis Center for Watershed Sciences and are being scrutinized by state water managers, tell a startling story.

California has certainly overpaid, and is still overpaying, for protection through the National Flood Insurance Program. After studying the past 21 years of flood insurance premiums and payouts around the nation, Pinter found that the federal program has paid out just 14 percent of California premiums collected in damage claims.

For comparison’s sake, the largest recipient, Mississippi, received 560 percent of its premiums in damage claims.

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These decades of overpayment have had a significant impact on Californians that goes beyond the financial loss — although that’s significant. (California’s imbalance exceeds $3 billion since 1994.)

As Pinter pointed out, California could have invested that money in floodplain management, risk-reduction strategies for flooding and even infrastructure improvements. (The Oroville Dam comes to mind.)

The overpayments are also a disincentive for other states to be as responsible as California has been about managing flood risk.

California has been a national leader for the ways in which it strives to protect communities from flooding, spending billions of dollars to reinforce levees near cities and to implement flood mitigation measures like bypass channels and habitat restoration. To put it bluntly, not every state has made such measures a priority — and, with federal flood insurance, they seem to believe they don’t have to.

The National Flood Insurance Program “is rife with subsidies, such as low ‘grandfathered’ premiums for homes in floodplain and coastal flood zones before the start of the program,” Pinter wrote with co-authors Rui Hui and Kathy Schaefer in a December blog post.

That decision has hurt the federal program, which is currently $20 billion in debt as national flood losses continue to climb.

Now, with congressional reauthorization funds for the federal insurance program looking far from assured in Washington’s difficult political climate, some California water managers are exploring the idea of dropping federal flood insurance altogether and launching a state-run program.

California certainly has the expertise to start a state-run flood insurance program, and it has the financial incentive.

But would a state-run program really be the right answer?

Critics have pointed out that Pinter’s data only go back a couple of decades, while calculating the risk of a catastrophic flood event requires going back 50 or more years. Homes and communities are often built in areas where the flood protection measures are designed to withstand a once-in-100-years flood event, for example.

That distinction is important, because it may take only one of those unusual floods to create billions of dollars’ worth of damage to California properties.

New York and New Jersey, for example, were net payers into the federal flood insurance program before Hurricane Sandy hit. When those states were looking at $8 billion worth of payouts, they were glad for the federal insurance.

That’s why the simplest and most elegant solution to the problem would be for the federal flood insurance program to modify California’s premium payments. California’s representatives in D.C. should demand answers about these overpayments and about whether or not the program is using the best models for flood risk.

It will be a fight to get those answers, but that’s a far better fight than battling over whether to keep California in the federal insurance program altogether.